Readers may notice the shameless title pinching of Steve Keen’s brilliant polemic on the ‘mainstream’ economics juggernaut. In his book, Keen unceremoniously and systematically lays bare all the failures of modern economics. From the appallingly laughable theoretical assumptions to the not-so-funny, egregious policies. For Keen, only a complete rebuild will do. I believe a similar operation is required with its dysfunctional cousin, development economics, but with a specific focus on colonialism. And I intend to do just that, but with fewer words – panache and skill.
The changing faces of development
Development economics established a sub-field of economics in the 1940s and 1950s by scholars such as Rosenstein-Rodan, Ragnar Nurske, and Arthur Lewis. The focus was on development challenges in the Global South, recognising that developing countries have specific features or structures that make their economies function differently from rich countries. Structures meant the technological capacity to industrialise, and although this had radical roots, the transition from feudal to capitalist development was still the central goal. This understanding then paved the way for a deeply diverse, interdisciplinary, and holistic scholarship that included history, politics, institutions, and economic structures.
Theories such as dependency (discussed later) emerged in the 1960s and 1970s and showed how poor countries also face constraints to development stemming from their position in the global economic hierarchy. For many, the game was rigged by rich countries. Examples include imperialism in Africa, colonial drain theory in India, and Latin American unequal trade.
The neoliberal counterrevolution in the 1980s – and evolving throughout the 1990s, 2000s and 2010s – saw development economics taken over – or colonised – by neoclassical (mainstream) economics. Since then, the focus narrowed significantly to the optimising roles of self-interested individuals, profit-maximising firms, and efficient free markets. Politics, history and structures (especially class) were removed and replaced with highly mathematical and quantitative-based methods that redefined economics as an objective and value-neutral field. Consequently, there was a shift from the study of development processes to the study of poverty alleviation, as shown in Figure 1. From how the system creates poverty to how to live with this ‘natural’ outcome by addressing low-income and supporting human capital formation.
The Washington Consensus contended – among other things – developing countries should open their countries to international capital. Based on flawed growth models such as Harrod Domar and Solow that argued that the missing ingredient to development was capital. Growth of the capital stock relies on a virtuous circle of increasing savings, which increases investment in capital, spurring economic growth and further higher savings and investment. Liberalised and efficient markets would bring surplus capital from the rich centre to the capital-deficit poor periphery to boost low savings and low investment. Sprinkle in some institutions, incentives, and property rights, stir, and you have development. In true Orwellian style the mainstream is accustomed to, the opposite happened – with devastating consequences.
Take South Africa, for example. It opened its economy to transnational capital flows in the 1990s. Figure 2 shows that post-global financial crisis, South Africa became especially dependent on short-term portfolio flows that significantly increased its vulnerability to the vagaries of global markets. The sudden influx of portfolio flows by investors profiting from interest rate arbitrage caused increased volatility of domestic assets and currency. The government’s vast hoarding of reserves to stabilise the economy led to a net reversal of capital flows – the poor countries were subsidising the rich countries! Severe debt and liquidity issues reduced the policy space available for development, destroying the manufacturing sector and increasing inequality and underdevelopment.
Many heterodox scholars argue that studies of economics and development have become colonised. This colonisation of development economics manifests in three interrelated ways:
- Removal of colonialism from capitalist development
A critique of development economics is essentially a critique of mainstream economics generally. And this is part of the problem. Rather than being a sub-field with different methods, development economics is a sub-field with the same methods but applied in different regions. Standardised economic laws tied to earlier enlightenment notions of modernity and rationalism that underpinned western ‘development’ are considered to function uniformly across all societal contexts. The neoliberal era brought a one-size-fits-all approach, or more formally, universalism. Thus, the historical and political contexts of capitalist development processes are hidden.
The result is the removal of processes of colonialism, violence, exploitation, and slavery that have been deeply embedded in the history of capitalist development – and, therefore, the often oppressive and racist nature of ‘development’. Instead, appeals to enlightenment values of universalism, rationality and modernity depict capitalism as merely a system of production and market exchange developing everywhere in the world in the same inexorable way.
- Removal of non-western scholars and theories
Development theories often begin with Adam Smith and his insights into the crucial role the division of labour has for productivity increases and, in turn, growth. The importance of labour to development was captured by his famous depiction of the pin factory. Despite writing 400 years earlier about many of the ideas that Smith has been exalted for, Arab scholar Ibn Khaldoun – and other non-western writers – are ignored in mainstream discourse.
Contemporary examples of exclusion include important perspectives from post-colonialism and feminism. They highlight the continued impact of colonial and imperialist legacies in shaping how the world is studied and how western knowledge production marginalises the non-western world. For example, the work of Chowdhury and Nair cuts across the intersection of race, gender and class to reveal relationships between global capital and power.
- Removal of pluralism and power relations
The exclusion of other non-mainstream ways of thinking about development hides the highly contested and diverse nature of the field. As such, development economics narrows to a monolithic exercise in technical efficiency and correction. The removal of political economy removes power dynamics that can reveal structural inequalities in the system, especially in knowledge production itself.
We live in a globalised system of stark imbalances in wealth and power – both within and between countries. Ingrid Kvangraven’s revival of dependency theory as a research programme can help us understand these global inequalities and provide equitable and sustainable alternatives. By taking a global historical approach to development, it explicitly recognises the contingent forces of colonialism in shaping how and why countries develop or don’t develop. Dependency defines the dynamics of unequal and exploitative centre-periphery relations, which has been obscured by mainstream models
Dependency theory that incorporates insights from subordinate financialisation offers a critical lens through which we can understand contemporary development challenges. The key insight from dependency is that modern challenges of transnational capital flows are driven by economic policies in the centre. Concomitantly, financialisation literature helps us understand the harmful ways in which parasitic finance destroys the real economy.
And so, in Lenin’s famous words we ask: what is to be done? This calls for a decolonial process that reinstates development economics as a pluralist, political, historical, and global-focused discipline. Dependency theory recast for the modern financialised world offers a way to do this. But shifting paradigms won’t be easy as the revolutionary quip reminds us ‘first they ignore you, then they laugh at you, then they fight you, then you win’. Dependency theory has experienced all of this, except the winning part – that is yet to come.
Aidan Hamill is an MSc International Finance and Development (2021-22) student at SOAS University of London. He also holds a BA Politics, Philosophy, and Economics from Queen’s University of Belfast. He has a keen interest in global political economy, pluralist/heterodox approaches to economics education, Modern Monetary Theory (MMT), and public banking initiatives. He is from Belfast, Ireland, and enjoys challenging himself physically and mentally by participating in several marathons and half-marathons. More recently, he has signed up for an Ironman triathlon.